Monday
June 13, 2005
UNITED WE FALL: My father retired from United Airlines
in November 2002 after 34 years with the company as a pilot. Like
thousands of other United retirees across the country, he stands
to lose a substantial chunk of his pension (more than 80% in his
case) as a result of the recent bankruptcy court ruling allowing
United to terminate its pension plans.
This comes
in addition to the hundreds of thousands of dollars my dad saw
evaporate from his portfolio as the value of his shares of United
stock (acquired in 1994 when United's employees gave up $5
billion in wage cuts in exchange for a 55% stake in the company)
went from over $100 per-share at their peak in 1998 to
about $1 per-share in early 2003 when he dumped them.
Unfortunately,
as I said, my
father's story is far from unique. But there's an extra element
of tragedy to Ellen Saracini's story, whose husband Vic was the
captain of UAL Flight 175 that crashed into the WTC on September
11. (Click here
to read the text of a letter Ms. Saracini sent to Congressman
George Miller describing the details of her situation.)
What's being
done to United's retirees is total disgrace, one made that much
more shameful by the fact it's been perpetrated completely within
the bounds of the law. Here is what Bradley Belt, the head of
the Pension Benefit Guaranty Corporation (PBGC), told
John McLaughlin on May 12:
"As
I testified last year, United stopped making contributions into
its pension plans last summer, beginning last summer, notwithstanding
the fact that the ERISA [The
Employee Retirement Income Security Act of 1974], the law
we talked about that created the PBGC and the Pension Insurance
Program, would have required them to put in that money. However,
since they were in bankruptcy, the Bankruptcy Code trumped their
legal obligations under ERISA and did not require them to put
those monies in.
But
the other important point to note is that United, up until that
point in time, had actually made all the minimum contributions
that were required by law.
The
problem is with the laws themselves. There are on the books
laws that are supposed to keep -- make sure that companies keep
their pension plans reasonably well-funded. Those laws have
failed us. Those funding rules have failed us. That's the reason
we have a $10 billion gap at United alone. The funding rules
are not stringent, they're full of loopholes, and that's what
the president is committed to addressing."
In other
words, what we have is another example of CEOs and CFOs of major
corporations pushing accounting practices and utilizing all available
loopholes to comply with the letter of the law even while violating
its spirit.
United is
the largest and most visible example of retirees being put at
risk by executives playing fast and loose with ERISA, but they
certainly aren't alone. To put this emerging fiscal train wreck
in context, the PBCG estimates there are currently 30,000 defined
benefit pension plans in the United States that are under funded
by a total of $450 billion. That's nearly
three times the amount it took to bailout the S&L industry.
In addition
to United's $9.8 billion default, The
Washington Post reports that 20 other companies have defaulted
on pension plans in the last three years to the tune of $100 million.
Northwest and Delta are standing on the PBGC's doorstep with billions
more in default. It's only a matter of time before the Big Kahuna
- General Motors - comes knocking.
Two quick
points worth making. The first is that one of the driving forces
behind this crisis is union contracts. My father earned a good
wage with good benefits under the pilot's union contract (as did
other members of United's unionized workforce) but those contracts
ultimately played a big part in United's inability to be competitive
with non-unionized low-cost carriers which, along with September
11 and soaring gas prices, caused the airline to go belly up.
Looking back, most United retirees would probably have rather
earned a slightly lower annual wage if they had known that the
trade-off would be United going bankrupt and then reneging on
a big chunk of their pension nest-egg.
Second, United
is a textbook example of why Social Security should be at least
partially privatized. For decades employees like my father faithfully
paid into a pension system in return for assurances that a certain
amount of money would be there for them when they retired. When
push came to shove, however, and the company ran out money, those
promises were broken.
If United's
employees had instead put that money into a 401K account, it would
still be sitting there. They would own it, be able to see it,
control it, and spend it or invest it as they liked.
Social Security
is nothing more than a big defined-benefit pension plan. Now that
we're getting a glimpse of what the future Social Security tragedy
is going to look like, it seems immoral for Democrats to resist
the idea of allowing people the option to control a portion of
their own Social Security contribution.
I don't know
that anything can be done to rectify the injustice being done
to United's retirees. The only two possible options I see - liquidating
the airline's assets or some sort of tax-payer subsidized bailout
mandated by Congress - seem untenable both economically and politically.
Perhaps the
only good that can come from the United debacle is that new laws
will be put in place to prevent companies with defined benefit
plans from using loopholes to under fund them. That would certainly
benefit future retirees, but it's a very small consolation to
my father and many more of the 50,000 lifelong United employees
who are watching their retirement dreams go up in smoke. -
T. Bevan 1:00 pm Link | Email
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